And so it begins. I’m talking about earnings estimate revisions for banks. And yes, they are headed lower. First up is Morgan Stanley (NYSE: MS). Credit Suisse analyst Howard Chen was expecting a profit of $0.80 a share. Now he says a $0.40 loss is more likely.

The Third Quarter is getting off to a rousing start. Economic data for the day is generally good – manufacturing shrunk less than expected and pending home sales rose more than expected. As of this writing (12:40 P.M. Eastern) the Dow is up 1.25%. Traders seem willing to forgive the larger than expected drop in private sector payrolls. We’ll see how long that forgiving attitude lasts…

Talk about boring. On Monday, around 10:30 AM, the S&P 500 rose above 924. By 12:30 PM, it rose to 927.99. Ignore the first hour of trading (when the S&P 500 made a comparatively wild 8-point swing), and the S&P 500 was confined to a 4-point range for 5 ½ hours.

The positive headlines are everywhere this morning. On Bloomberg alone, we read that the worst is over for Treasury bonds, factory output improved in Japan for the second straight month and home values in England remained stable for the second straight month.

It’s enough to make you think that there’s an economic recovery underway…

Yesterday, the Fed scaled back two of its liquidity-providing programs and announced it would let a third one expire on July 1, 2009.
Each program was designed to provide liquidity to securities dealers and money-market funds that couldn’t raise funds in the capital markets. The Fed noted that none of the programs were used anywhere close to capacity. And the improving economy and loosening of credit markets has made the programs less necessary.

The Fed has spoken. Interest rates are not going higher anytime soon. And the Fed announced no change to its $1.75 bond purchase program. Bonds sold off, suggesting that traders hoped the Fed would do more to put a floor under prices.

The Fed made it a point to say that "…inflation will remain subdued for some time." But the Fed also hasn’t made any comments about target levels of inflation, or what levels of inflation would make it uncomfortable. With the amount of money being pumped into the system, this is a concern to me. Especially with commodity prices rising and the spread between 10-year Treasuries and 10-year inflation adjusted bonds (TIPS) increasing over the last month.

The FOMC is expected to announce no change to the overnight lending rate later today. Economists also expect the Fed to say that it will continue to purchase Treasury bonds to provide liquidity and keep interest rates at least somewhat in check.

In other words, there’s no way this Fed can say anything about supporting a strong U.S. dollar with anything approaching credibility.

Oil, steel, gold and other commodities all rallied as the dollar weakened against the euro and the yen. When the dollar falls in value, you need more of them to purchase things.

Stocks don’t like Mondays. This is the third Monday in a row that’s started with a gap down open. And volume has been on the light side each of these Mondays. What does it mean?

Low volume is usually interpreted to mean that there’s little conviction behind a move. That doesn’t mean the move itself can’t be large, just that it likely won’t follow through and may even reverse. Still, I can’t say I’d run out to buy stocks in anticipation of a rebound after yesterday’s drop.

Oil is down again this morning. The World Bank has lowered its growth projections for the global economy. In March, the World Bank was calling for a 1.7% contraction in global GDP. Now, it says the global economy will shrink by 2.7%. That’s a pretty big revision.

So now the government is actually going to subsidize car sales with up to $4,500 in incentives for car buyers who get rid of cars that get 18 mpg or less.

I understand that the auto industry is hurting. And I also get that more efficient cars help reduce our dependence on foreign oil. But is it appropriate to use tax payer dollars to fund auto purchases?